Week of Monday, July 26, 2021 | Issue 40
Sam Brennan, Illicit Finance and Economic Threats (IFET) Team
This week, PayPal and the Anti Defamation League (ADL) partnered to
expose extremist financial pipelines
Date: Monday, July 26, 2021
Location: Washington D.C., United States
Parties involved: Anti Defamation League (ADL); PayPal Holdings Inc
The event: PayPal Holdings Inc, the online payments-system company, is partnering with the Anti-Defamation League (ADL), the nongovernmental activist organization, to expose the financial pipelines and transactions of extremist and hate movements that support their criminal operations. The ADL’s Center on Extremism will conduct the probe to identify and restrict the revenue streams providing monetary support to “extremist and anti-government organizations” as well as “actors and networks spreading and profiting from all forms of hate and bigotry against any community,” according to the ADL press release.
PayPal has previously leveraged its platform to successfully expose human trafficking pipelines and illegal firearm trafficking. The agreement has a high likelihood of successfully identifying transactions such as donations and other expenses to hate groups and extremists which will likely result in more complete understandings regarding the internal financial structures of these groups. The partnership with the ADL has the possibility of exposing existing extremist financial pipelines and further restricting financial avenues for hate groups.
The identification and prosecution of existing financial pipelines used by extremist groups will likely drive a surge in hate groups using more complex and covert financial systems like cryptocurrency to finance their operations. This will likely result in extremist financing becoming more complicated to identify and will further hinder law enforcement efforts to monitor and detect emerging threats from domestic hate and extremist groups.
Significant amounts of online criticism towards PayPal and the ADL over privacy concerns could also drive a rise in interest in extremist groups targeted by the probe. This will likely result in further recruitment and support for extremist and hate groups targeted by the probe who will likely draw significant attention from media and online coverage.
Date: Monday, July 26, 2021
Location: Washington D.C.; United States
Parties involved: Tether; US Department of Justice (DOJ); US Federal Reserve
The event: A US probe into Tether is investigating whether Tether concealed from banks that transactions were linked to crypto in a massive fraud case with substantial implications for the global cryptocurrency market. The US Treasury Department and Federal Reserve are among agencies concerned that the tokens could threaten financial stability, and are obscuring transactions tied to money laundering and other misconduct because they allow criminals to make payments without going through the regulated banking system.
Increased scrutiny by regulatory agencies will likely cause a run on stablecoin assets that are backed by the US dollar. The run on stablecoin would create a similar run on real US-dollar-backed assets, causing increased harmful financial volatility and uncertainty.
Regulatory intervention into stablecoin markets could uncover a number of illicit financial transactions tied to money laundering, human trafficking, and terrorist financing further limiting the financial reach of actors linked to criminal activities.
As central banks seek to create their own digital currencies, stablecoin assets will be increasingly scrutinized and legally challenged by regulators. Stablecoin acts similarly to the way any digital central bank-backed currency would but allow for transactions to be shielded from the eyes of regulators and law enforcement. This means that further legal challenges to stablecoins like Tether are likely.
Date: Wednesday, July 28, 2021
Location: Paris, France
Parties involved: Equatorial Guinea VP Teodoro Obiang Mangue; French Government; Equatorial Guinea; French Appeal Court
The event: On Wednesday, July 28, 2021, France's highest appeal court upheld a guilty verdict against the son of Equatorial Guinea's president for embezzlement, paving the way for the potential return of tens of millions of dollars to the country's people. Teodoro Obiang Mangue, who is also the vice president of the Gulf of Guinea nation, was handed a three-year suspended sentence and a $33 million USD fine at the end of his trial in absentia in 2020.
The decision by the French appeal court sets a precedent for criminal sentencing of foreign leaders for gross financial crimes and corruption by French courts. Increased legal scrutiny of the financial affairs of leaders of developing countries will likely have the impact of increasing accountability and reducing corruption.
The verdict by the French appeal court is likely to have little effect on the country’s President and ruling dictator who has been widely criticized for embezzling the country’s oil wealth. The verdict may cause social and political unrest in Equatorial Guinea driving anti-corruption political movements against the current dictator.
Date: Friday, July 30, 2021
Location: London, United Kingdom
Parties involved: Monzo Bank; UK Financial Conduct Authority (FCA); UK Government
The event: The Financial Conduct Authority is investigating Monzo Bank over potential breaches of anti-money laundering laws, as the regulator attempts to crack down on what it sees as widespread weakness in financial crime controls across the UK banking sector. The rapid growth of start-up banks such as Monzo has raised concerns that their compliance and “know your customer” processes would not be able to keep up with their pace of customer acquisition. The FCA had already started a review of Monzo’s systems last summer but informed the bank that it had also started a formal investigation in May 2021, the same month that it put the wider industry on notice to improve practices.
German FinTech N26 was also recently cited for possibly violating anti-money laundering laws by German regulators. This comes as part of a wider International effort to tighten and enforce anti-money laundering regulations. This signals a possible gap in anti-money laundering security by start-up banks that may have been exploited by criminal organizations.
Start-up banks like Monzo with high rates of customer acquisition may continue to be heavily scrutinized by law enforcement and financial regulators for oversights that have allowed money laundering and other illicit financial transactions. The investigation has little likelihood of substantially impacting the bank's reputation with the probe likely signaling the regulatory intentions of the FCA to demonstrate compliance with new anti-money laundering regulations amongst British banks.
 PayPal Partners with Anti-Defamation League to Research Financial Pipelines of ‘Extremist’ Groups, National Review, July 2021, https://news.yahoo.com/paypal-partners-anti-defamation-league-162232827.html?guccounter=1
 Tether Executives Said to Face Criminal Probe Into Bank Fraud, Bloomberg, July 2021, https://www.bloomberg.com/news/articles/2021-07-26/tether-executives-said-to-face-criminal-probe-into-bank-fraud
 Equatorial Guinea VP loses appeal against French embezzlement verdict, Reuters, July 2021, https://www.reuters.com/world/africa/equatorial-guinea-vp-loses-appeal-against-french-embezzlement-verdict-2021-07-28/
 FCA probes UK bank Monzo over potential money laundering breaches, Financial Times, July 2021, https://www.ft.com/content/3b3281ef-f992-44c8-9afe-fdd507f6e80f